1. Field of the Invention
The present invention relates to a method and system for providing a client with the benefit of a fixed rate annuity, offering both a static, guaranteed rate for a multi-year period, as well as a rate which fluctuates periodically (reset rate); more particularly, to a method and system wherein a client initially selects the reset rate while retaining a one time option, exercised manually or automatically, to switch to, or lock in, the guaranteed interest rate for the remainder of the contract term, when the reset rate falls below the guaranteed rate.
2. Description of the Prior Art
A deferred annuity is typically used to provide accumulation and, potentially, a future stream of annuity income. The deferred annuity comprises an accumulation period during which the account value will vary with the underlying investments. Deferred annuities typically provide guaranteed income for life which transfers some portion or all of the risk of outliving ones accumulated assets to the insurer.
One basis for distinguishing commonly available deferred annuities is whether the annuity is classified as a “fixed annuity” or a “variable annuity”. In a fixed annuity, the insurer guarantees a fixed rate of interest applicable to each annuity deposit. Therefore, a fixed annuity is desirable for those seeking a “safe” investment. The guaranteed interest may apply for a specified period of time, often one year or more. Often, a rate guaranteed for more than one year is called a “multi-year guarantee” (MYG rate). The rate credited on a fixed annuity is reset periodically, moving in an amount and a direction that correlates with the yields available on fixed-income investments available to the insurer. The rate may also be adjusted based upon an external index. For a given term, fixed annuities typically only offer clients the fore-mentioned guaranteed rate of interest for multi-years (MYG rate) or alternatively, an initial rate that can be reset periodically (typically annually). The MYG rate is often lower than the reset rate because the insurer has less flexibility. A client must select only one of these options during a contract term.
Thus, typically, a client seeking a high rate of return, who selects a fixed annuity, elects to receive rates that can be reset periodically, and faces the risk that the issuing company may significantly lower rates at the end of each period within the life of the contract. This exposure to risk reduces the attractiveness of the annuity as an investment. Potential clients who require a certain level of income in retirement, and will be depending upon the annuity to supply that income, may seek other investments, outside of the annuity market, without that potential exposure.
Thus, there remains a need in the art for a data processing method, for administering an annuity product for a contract term, wherein the annuity product has a lock-in feature that provides a guarantee that the interest payable will not fall below a guaranteed interest rate, should adjustable rates be significantly reset downwards. In addition, there is needed an annuity product wherein a guaranteed interest rate is automatically applied to the account balance of the annuity, when an adjustable interest rate payable falls below the guaranteed interest rate, so that the client need not concern himself or herself with the fluctuations in the adjustable rate.